Income Tax FY-2025: How to Switch Between New and Old Tax Regimes

Until FY 2019-20 (which concluded on March 31, 2020), there was just one tax system with four tax slabs and rates. The New Tax Regime was implemented in 2020.

Income Tax 2024-25: During the Union Budget hearings for fiscal year 2023-24, Finance Minister Nirmala Sitharaman stated that the new tax structure will be implemented as the default regime. This new tax policy went into effect in 2020. The current laws provide that if taxpayers fail to disclose their choice with their employer, deductions will be handled in accordance with the New Tax Regime.

Union Finance Minister Sitharaman emphasised in her speech on Budget recommendations for Fiscal Year 2023-24 that one of the primary goals of the new income tax system is to give individuals more control over their financial management. Rather than using government incentives or punishments to compel decisions, taxpayers are given significant leeway in deciding how to spend their money. 

Nonetheless, taxpayers who choose to cling to old taxation rules have been granted flexibility by measures in Budget 2023, which allow them to switch between old and new regimes. The frequency with which such transitions occur, however, is dependent on certain forms of income.

Salaried Individual

A salaried individual has the ability to choose between the new and old tax regimes many times during the fiscal year. The new tax system provides fewer tax deductions and exemptions than the previous tax regime, which allowed for different deductions from taxable income under Chapter VI A. Section 80C is a well-known and widely applied deduction. 

Profits from business or profession

Individuals who earn a living from their company or profession, on the other hand, can only make one decision. For example, if a person with business income moves from the old to the new system in FY 2023, they will be ineligible to transfer again. Individuals with company income who opt out of the new tax regime will be unable to opt back in in the future.

How can I switch while submitting an ITR?

The Central Board of Direct Taxes (CBDT) recently issued two new income tax return forms for the Assessment Year 2024-25: ITR-1 (SAHAJ) and ITR-4 (SUGAM). ITR Form 1 now contains the option to pick a tax regime. To opt out of the new tax regime, ITR 4 taxpayers (individuals with business or professional income) must complete form 10-IEA.


Previously, people had to complete Form 10-IE to select the new tax regime. However, Form 10-IE, which allowed people to opt into the new tax system, has been terminated. This amendment attempts to make the new tax regime the default setting beginning in the fiscal year 2023-24. As a result, unless people take particular steps to opt out of the new tax scheme, it will apply automatically.

Old vs. New Tax Regime

Individuals can take advantage of a variety of tax breaks and deductions under the previous tax system. Exemptions and deductions often claimed include home rent allowance (HRA), leave travel allowance (LTA), and deductions under Sections 80C, 80D, 80CCD(1b), 80CCD(2), and more.

New Tax Regime

The exclusions and deductions provided under the Old Regime do not apply to the New Regime. If the taxable income (after all deductions) under the prior regime was less than Rs 5 lakh, the person did not have to pay any tax. 

If your taxable income is less than Rs 7 lakh, the full amount would be tax-free under the new regime.

• Income up to Rs 3 lakh is tax-free.
• Income between Rs 3 lakh and Rs 6 lakh is taxed at 5%.
• Over Rs 6 lakh to Rs 9 lakh, it is 10%.
• Over Rs 9 lakh to Rs 12 lakh, it's 15%.
• Over Rs.12 lakh to Rs.15 lakh, it is 20%.
• Above Rs 15 lakh, it's 30%.

Old Tax Regime

• Income Tax Slabs (Rs) Income Tax Rates (%)
• From 0 to 2,50,000: 0%
• From 2,50,001 to 5,00,000 5%.
• From 5,000,001 to 10,000,000, 20%
• From 10,000,001 and above 30%